ATC210519: Report of the Select Committee on Trade and Industry, Economic Development, Small Business Development, Tourism, Employment and Labour on a Virtualengagementwith National, Provincial and Local Government On Special Economic Zones and Industrial Parks On Realizing Government Policy Outcomes in Respect of Investments, Economic Growth and Job Creation at Provincial and Local Government Level, Dated 18 May 2021

NCOP Trade & Industry, Economic Development, Small Business, Tourism, Employment & Labour

Report of the Select Committee on Trade and Industry, Economic Development, Small Business Development, Tourism, Employment and Labour ON A virtualENGAGEMENTWITH NATIONAL, PROVINCIAL AND LOCAL GOVERNMENT on Special Economic Zones and Industrial Parks on realizing Government policy outcomes in respect of investments, economic growth and job creation at provincial and local government leveL, DATED 18 MAY 2021

 

1.Background

 

The Select Committee on Trade and Industry, Economic Development, Small Business Development, Tourism, Employment and Labour (Committee), having had a virtual engagementon 16 March 2021 with national, provincial and local government authorities in relating on the role and contribution of Special Economic Zones and Industrial Parks on realizing government policy outcomes in respect of investments, economic growth and job creation at provincial and local government level, reports as follows:

 

2.Introduction

 

South Africa’s industrial development agenda is informed by a realisation that industrial development offers the most sustainable route towards economic prosperity and success. This is clearly articulated in theNational Industrial Policy Framework (NIPF), Industrial Policy Action Plan (IPAP) and National Development Plan (NDP), and recently the Re-imagined Industrial Strategy. These important policy and strategy documents outline a number of challenges confronting the country’s economy, goals and key drivers, cross-cutting measures as well as sector-specific measures that are critical to drive the country’s industrial and economic agenda.

 

The implementation of the country’s industrial development agenda requires adaptable, effective and efficient instruments that are responsive to the strategic needs of the host region, investors and other strategic stakeholders. To this end, the government has developed Special Economic Zones (SEZs) policy and legislation (Special Economic Zone Act No. 16 of 2014) as one of the key instruments to accelerate the implementation of its industrialisation agenda. The programme has been designed to attract foreign and domestic direct investments to the designated zones and host regions; expand the manufacturing sector as a critical foundation to grow both the primary and secondary economic activities in the economy; grow and diversify value-added exports; create sustainable and decent jobs in the host regions; and enhance innovation, attraction, development and retention of talent and knowledge.

 

Industrial Parks serve as catalysts for broader economic and industrial development in host regions. Amongst its objectives is to accelerate economic development in the lagging regions such as rural areas, and also to support job creation in manufacturing and related sectors so as to reduce the negative impact associated with urban migration.

 

On the 16 March 2021 the Committee hosted a meeting with selected provincial and local government authorities, and national government departments. One of the objectives of the meeting was to enable the Committee to track the implementation of the SEZs and Industrial Park Revitalisation Programme. The meeting included the Department of Trade, Industry and Competition, National Treasury including Eastern Cape, Mpumalanga, North West, Free State and Western Capeprovincial departments responsible for the implementation of industrial development programme. The invitations were also extended to theNelson Mandela Metro, Coega Development Corporation (CDC), North West Development Corporation, Western Cape Tourism, Trade and Investment Promotion Agency (Wesgro), and eHlanzeni and Bojanala District Municipalities as one of the critical hosting regions for the implementation of the industrial development programme.

 

The engagement of the Committee with selectedprovincial and local government authorities, and national government departmentswas framed around the following key areas:

• Share experiences in the implementation of the SEZs and Industrial Park, challenges and opportunities;
• Investment in SEZ and industrial parks including Digital Hubs;
• Funds allocated by provincial and local government;
• Status of Digital Hubs;
• Local community access to the Digital Hubs.

 

The following section of the report will be divided into six areas that covers the national development perspective in relation to SEZs and Industrial Parks development programme; provide a brief outline of the selected SEZs-Coega Special Economic Zone, Nkomazi Special Economic Zone, BojanalaPlatinum Valley Special Economic Zone, and the Western Cape Province Halal Industrial Park. The report would also outline issues that were lifted during engagements. Then, it will provide observations and recommendations.

 

3. National Development Perspective in relation to SEZs and Industrial Parks

 

The success of Special Economic Zones in Asia, in particular China compelled many developing countries such as South Africa to adopt SEZs as policy instruments to stimulate industrial development through attracting both domestic and foreign direct investment. The Department of Trade, Industry and Competition’s policy framework on SEZs advances that SEZ Policy would benefit industrialisation and contribute to the government policy outcomes to attain positive economic growth, development and employment.

 

The United Nations Conference on Trade and Development (UNCTAD) reported that between 2018 and 2019, Africa’s FDI inflows increased by 11 per cent to US$46 billion, following consecutive decreases in 2016 and 2017. UNCTAD had also predicted that FDI inflows would rise in 2019 through 2020. However, due to COVID-19, the continent’s overall FDI inflows is estimated to shrink by 15 per cent.Further, UNCTAD’s latest projections predict that Africa will also experience foreign capital outflows due to COVID-19. 

 

COVID-19 as evident in many reports would have an impact to the various sectors of the economy including the related industries. The industries’ vulnerability varies. Others would be more severely impacted than others.  South Africa entered the COVID-19 phase in a bad shape from economic point of view. Many reports indicate that South Africa’s economy continue to perform below the Advanced Economies including the BRICS countries (National Treasury: 2020 Medium Term Budget Policy Statement including 2021 Budget Review). The Department of Trade, Industry and Competition submitted that due to the unprecedented challenges confronting the globe, the manufacturing sector has experienced a decline in growth. South Africa, like many other developed and emerging economies continues to experience manufacturing decline due to challenges brought by COVID-19, unreliable power and limited demand for products.

 

It is indicated in various government policy documents such as the IPAP, NDP and recently, the Re-Imagined Industrial Strategy some of the aims of the SEZs Policy apart from attracting foreign direct and domestic investments, is to integrate local firms into global value chains, increase exports, develop local industrial capabilities, accelerate the beneficiation of natural resource endowments, accelerate the development of the country’s lagging regions and create decent jobs.

 

The Department of Trade, Industry and Competition reported that as part of the economic recovery plan, government would also use SEZs to reignite manufacturing led industrialisation in an accelerated manner. Although the SEZ programme is relatively new in South Africa (having started in 2014), it continues to attract a significant number of investments in various regions. The rapid growth of SEZs’ such as Coega, East London, Dube Trade Port and Tshwane Automotive Sector continue to demonstrate the significant role played by SEZs’in the country.

 

SEZs in South Africa date back to 2000 when the Industrial Development Zone (IDZ) programme was introduced by then Department of Trade and Industry under the Manufacturing Development Act of 2000. From 2016, all existing IDZs became SEZs, while all new SEZs could only be established in line with the provisions of the Special Economic Zones Act 16 of 2014.

 

Table 1 shows that the SEZs that dominate in terms of investment attraction and employment creation are those which were initially administered as Industrial Development Zones. The domination of the SEZs are those which were mainly located in coastal areas. Table 1 shows that provinces that have coastal regions tended to dominate. The Eastern Cape and KwaZulu- Natal provinces have two SEZs each. However, following the policy reforms, more areas are beginning to have appetite and to attract interest for SEZs, resulting in an increase in the number of applications for different locations within the country.

 

 

 

Table 1: Shows Summary of Foreign and Domestic Direct Investment for SEZs that are Operational and have Broken-Ground; 2021 3RD Quarter

SEZ Name	No.of Operational Investors	Operational Investment (R Millions)	Jobs Created	No. of Secured But Non Operational Investors	Secured but Non Operational Investment (R Millions)	Expected Jobs ToBe Created
Coega	49	10 941,00	8 113	13	2 578,00	1474
ELIDZ	33	4 177,00	2 075	12	3 361,00	2187
MAPSEZ	4	1 025,00	80	6	3 967,00	373
SBIDZ	6	119,50	57	16	11 825,00	483
DTPSEZ	43	2 078,80	3 794	10	3 043,00	2 185
RBIDZ	3	320,00	96	3	6 700,00	782
OR Tambo	1	257,00	1 200	13	375,50	277
Atlantis	4	680,00	332	2	20,00	25
TASEZ	0	0	0	12	4 332,60	2 088
Total	143	19 598,30	15 747	87	36 202,10	9 874

Source: Department of Trade, Industry and Competition

 

Table 1 shows that as from 2021 3rd quarter reporting period, the SEZs programme has secured 143 investors. Most of the investors are located in Coega (49), Dube Trade-Port (43), and East London (33). Respectively secured operational investment approximately R10, 9 billion, R2 billion, and R4, 1 billion. The Department of Trade, Industry and Competition that the SEZs programme has shown increasing momentum. As from 2018/19 financial year to 2020/21 third quarter reporting; Operational Investments increased from R17, 7 billion to R19.5 billion (see table 1). The number of investors increased from 129 to 143. Number of direct jobs created increased from 15 392 to 15 747.

 

According to the Department of Trade, Industry and Competition, the number and value of operational investment are expected to increase by almost R10 billion during 2021/22 financial year due to investments that are currently under construction. Further, the Department reported that despite the devastating impact of COVID-19 on the economy, the SEZ programme achieved the following during the 2020/21 financial year:

• Tshwane Automotive SEZ is completing the construction of 12 factories with the private investment value of R 4 33 billion, these investments are expected to create approximately 2088 jobs; 
• Dube Trade Port secured new investments worth approximately R600 million, the investments are expected to create 841 jobs;
• Coega has signed four (4) new investors that are estimated to be valued approximately

R49 million and are expected to create an estimated 101 new jobs;

• The Saldanha Bay Industrial Development Zone (SBIDZ) is completing the construction of two manufacturing facilities with an investment value of R380 million, they are expected to create approximately 90 direct jobs;
• Richards Bay Industrial Development Zone is completing the construction of edible oil factory and Titanium Dioxide factory with a combined private investment value of R5,8 billion, they are expected to create approximately R 600 direct jobs;
• It has reached consensus with Department of Public Enterprises and Transnet on the establishment of rail corridor between Ford and Port of Ngqura to support Ford and Tshwane Automotive Special Economic Zone (TASEZ) on the movement of components and finished cars from Pretoria to the Port of Ngqura;
• East London Industrial Development Zone (ELIDZ) completed the construction of 9 investor facilities and the expansion of three existing facilities.  These facilities will create an additional 1534 manufacturing and services jobs and these will be operationalised within the next two years;

 

Table 1, further shows that SEZs programme has secured approximately R36 billion valued investment still to be operationalised. These investments are expected to create 9874 direct jobs, empowered by 87 investors.  Saldanha Bay Industrial Development Zoneanticipated to operationalise approximately R11 billion valued investments, followed by the Richards Bay Industrial Development Zone(R6, 7 billion);Tshwane Automotive Special Economic Zone(R4, 3 billion);Maluti-A-Phofung Special Economic Zone (R3, 9 billion); East London (R3, 4 billion and Coega (R2, 6 billion).

 

In an effort to assist struggling SEZs, dedicated intervention teams consisting of departmental officials have been established to support the following prioritised proposed struggling zones, namely:

• Vaal River City and Tshwane Automotive SEZ, focusing on manufacturing and logistics (Gauteng);
• Nkomazi SEZ, with a specific focus on agric business (Mpumalanga);
• Maluti-A-PhofungSEZ will focus on Automotive; Agri-processing; Logistics; General processing; ICT, and Pharmaceuticals (Free State);
• Bojanala, focusing on PGM beneficiation and Mining input supplier park (North West);
• Namakwa, with specific focus on mineral beneficiation (Northern Cape);
• Musina and Tubatse, focusing PGM beneficiation and Mining input supplier park (Limpopo);
• Wild Coast, focus on agric business and tourism (Eastern Cape).

 

Further, the Department of Trade, Industry and Competitionreported that the intervention teams would assist provinces in implementing, amongst others the following:

• Develop and implement tripartite agreements;
• Planning and development of infrastructure for the zone;
• Mobilise funding from all spheres of government for operations and infrastructure;
• Investment facilitation;
• Stakeholder mobilisation and management;
• Compliance and institutional development;

 

The intervention team will be supported by SEZ Project Management Unit (NPMU) established at the Industrial Development Corporation (IDC). The NPMU will work closer with the Development Bank of Southern Africa (DBSA). This Unit was initiated following Cabinet approval on the establishment of the national implementing mechanism to address challenges confronted by provinces. Cabinet approval included the reconfiguration of the SEZ Programme to include intimate involvement of national government in planning and management of the SEZs. It was reported that work has already started in the Limpopo, North West, Gauteng, Northern Cape and Free State Provinces. The NPMU is specifically established to focus on the following:

• Support the Department in its responsibility to be an active participant in the planning, development and management of SEZs and industrial parks;
• Provide specialist advisory services to assist provinces and municipalities in accelerating the planning, development and management of SEZs and industrial parks;
• Support the Department in coordinating the contribution of all national stakeholders to planning, development of SEZs and industrial parks, ensuring that there is alignment and that all synergies are realised; and
• Ensuring that sustainable development impact, as measured by the balance between social, economic and environmental needs, is entrenched in the rollout of SEZs and industrial parks, making implementation both inclusive and transformative.

 

It has been the view of the Committee that more coordinated work needs to be done at all levels of government to translate investment commitments to actual outcomes (operationalise investment commitments).With better coordination and collaboration in planning, implementation and management would result to speedily delivery of development programmes.Across government, governance, regulatory regime and policy certainty remains a challenge, and that needs to be addressed. The Department of Trade, Industry and Competition reported that the work of the NPMU will help alleviate the poor synergy that currently exists at national level.

 

The Committee emphasised that coordination across levels of government is crucial, in order to allocate scarce resources better and provide support to businesses. Local government capacity and capability would need to geared-up. For the SEZs to become effective, it is crucial that capacity and capability in investment facilitation and cluster-oriented management capabilities at provincial and local government be created. Given the vital role of provinces, local government and private sector in industrial development, including in expansion of SMMEs. It is critical that an effective multilevel governance in industrial development is promoted and enhanced.

 

Table 1 shows the potential that SEZs in South Africa can do in terms of attracting investments, and creation of jobs. However, funding and financing remains a challenge. In an era of constrained fiscus space, alternative financing would be needed to enhance the role of SEZs as a policy instrument to drive industrialisation, lift value added exports and contribute to the inclusive growth agenda. 

 

In terms of the Industrial Park Revitalisation Programme (IPRP), the Department of Trade, Industry and Competitionreported that the programme isimplemented in line with the Department’s Regional Industrial Development Strategy. The Regional Industrial Development Strategy aims to accelerating economic and industrial development in the lagging regions by attracting business investments to locate in these areas. The IPRP support and promote the growth and development of the state owned industrial parks, mostly located in the historically disadvantaged areas and former homelands. It is a key enabler to develop Rural and Township Industrial Economy Acceleration to promote transformation and encourage the establishment of Black Industrialists in the Industrial Parks. The IPRP focuses on both the physical infrastructure and other governance and compliance support requirements with the key objective of enhancing industrialisation. The Programme’s objectives is to increase investment and job creation in the identified regions. The implementation programme is conducted in a phased approach as follows:

• Phase 1: Security infrastructure, upgrade, fencing, lighting, critical top structures and electrical requirements- The first phase requirements was requested by industrial parks management agencies who have been experiencing high crime levels;
• Phase 2: Compliance to regulatory requirements – Landfill sites; Waste and Water treatment plants, Fire, Health & Safety Requirements, and Renewable energy initiatives;
• Phase 3: Engineering designs and construction of new and existing roads, bulk water supply and sewage treatment plants or industrial effluent control;
• Phase 4: Upgrading electricity infrastructure, and build new top structures in line with the expansion programme of the Parks;
• Phase 5: Development of vacant land and sustainable industrial clusters in the Parks.

 

Department of Trade, Industry and Competition reported that since the inception of the programme, R720 million was approved towards funding Phase 1 and Phase 2 of the revitalisation programme. To date, 30 parks have been identified for revitalisation, with 12 Industrial Parks completing Phase 1 revitalisation, 5 parks in progress of Phase 2 revitalisation, and 6 new applications being prepared for Phase 1 revitalisation.

 

By the end of 2020/21 financial year,several Industrial Parks were in construction phase and 427 construction related jobs were generated, with 262 representing the youth.  The Department reported that IPRP also focus on supporting local Small Medium and Micro Enterprises (SMMESs) in the respective areas where they are implemented. Further, 69 SMMEs were used in construction, with a cumulative contract value of R60million awarded to the SMMEs. Of which, 10 SMMEs were female owned small enterprises.

 

The Department of Trade, Industry and Competition reported that it has signed a Memorandum of Understanding (MOU) with United Nations Industrial Development Organisation (UNIDO) for implementation of the Global Eco Industrial Park Programme(GEIPP). Awareness workshops on Eco Industrial Parks (EIP) framework, including EIP policy and EIP support tools started on 16 February 2021 with regional workshops during the last week of February 21 and during March 21. The refurbishment of the Botshabelo Industrial Park Phase 2 is nearing completion, which includes a Digital Hub. The Hub will focus on benefitting youth enterprise development and launching of Fourth Industrial Revolution platforms in the community.

 

In terms of provincial impact, the Department of Trade, Industry and Competitionreported that

it is estimated that cumulatively 65 000 people are employed in the first 12 Industrial Parks that underwent Phase 1 revitalisation. The parks have an occupancy rate of between 60-90 per cent of its Gross Lettable Area (GLA).  In terms of provincial allocation, the Critical Infrastructure Fund has disbursed as follows:

• Gauteng R189 million
• Eastern Cape  R187 million
• Free State R123million
• KwaZulu-Natal  R99 million
• North West R84 million
• Limpopo  R75 million

 

Further, the Department of Trade, Industry and Competition reported on the work that government is doing in rolling out digital hubs in the State Owned Industrial Parks and Special Economic Zones, under theDigital Hubs Programme (DHP). The Hubs are aimed at connecting communities through digital information and communication technology (ICT) related skills, training, business development, support services. Further services provided include access to work spaces as well as access to training on cross cutting skills development. The Digital Hub is designed to provide digital platforms for prospective entrepreneurs and youth interested in the Fourth Industrial Revolution and is an opportunity to access a hybrid of technological services, digital learning skills and the use of shared office space.

 

The Department’s Digital Hubs Programme priorities for 2021 include the following:

• Development of an Industrial Parks Development Policy;
• Development of a collaboration compact with all provinces to align with thenational implementation strategy framework for industrial parks;
• Finalising existing application for 7 Industrial Parks;
• Implementation of the Global Eco-Industrial Parks Programme (GEIPP) practices in the Phuthaditjhaba and Ekandustria Industrial Parks;
• Establishment of a Digital Hubs in Seshego, Nkowankowa, Babelegi Isithebe, and Vaal Industrial Parks.

 

The Committee has stressed that it is vital to have Industrial Parks including SEZs aligned with growth opportunities within the region (hosting regions-provinces and local municipalities) and its linkages to other regions.The Industrial Park Revitalisation initiatives, if properly planned, funded, developed, managed and marketed, can be growth engines supporting industrialisation and local economic development. The Committee recognised the need to promote private sector participation in the Industrial Park Revitalisation Programme. Government need to leverage public funds to attract private capital. Further, Industrial Park Revitalisation, as noted by the Department is one of the critical policy instruments that could be used to drive rural development strategy to materially change rural economies, and improve rural incomes and general standard of living both rural and peri-urban communities. 

 

The importance of Public-Private Partnerships in development was also emphasised in the presentation made by the National Treasury’s Cities Support Programme (CSP). According to the National Treasury, the Programme aims to supportmore compact, connected and transit-oriented cities through spatial transformation driven by capable metropolitan governance, and supported by enabling policy and regulatory frameworks and appropriate fiscal incentives.The mandate of the Cities Support Programme is derived from the National Development Plan and the Integrated Urban Development Framework. South Africa is a signatory to the United Nations Habitat New Urban Agenda which represents a shared vision for a better and more sustainable future. National Treasury advances that if well-planned and well-managed, urbanization can be a powerful tool for sustainable development for both developing and developed countries.

 

The CSP advances that although it is recognise the essential role of cities as the drivers of national economic development, South African cities are yielding low urban dividend due to the following factors owing to:

• Dislocation of people and jobs;
• Low densities;
• Dysfunctional residential property markets;
• Weak governance;
• Fiscal/ financial and sectoral/ policy and investment misalignment;

 

CSP stressed the need for the acceleration of the spatial planning, and transformation of cities to drive development. Capacity and capability of metropolitans remains a challenge, and that should be addressed. Governance, and stable policy and regulatory regime should be promoted, and appropriate fiscal incentives should be supported and promoted. The intended outcomes of the programme is that metros are able to implement strategies to accelerate inclusive economic growth by building inclusive, productive and sustainable cities. The National Treasury reported that it is envisaged in the five-year objective, the CSP will institutionalisepractices and activities to support the development objective and outcome for national departments, provinces and metros policies.

 

Metropolitans’ economic activity play an essential role in the national economy. Economic recovery efforts are largely depended on metropolitans’ performance and socio-economic development. Hence it is critical to tackle spatial economic development challenges including socio-economic ones at metro level. The National Treasury reported that in South Africa, between 2011 and 2020 metros have reported declining growth rates. So metropolitans’ economic growth rates have demonstrated weak economic performance even prior to the COVID-19 pandemic. It is reported that whilst metros recovered faster than small towns and rural areas, metropolitans’ economies still contracted by at least 8 per cent during 2020. Key sectors affected include wholesale and retail due to the significant drop in footfall at city malls and sales. The automotive sector has also seen a steady decline and the tourism and hospitality sector anticipate a severe and prolonged impact. Further affected industries include construction and property sectors and the decline in container landing at city ports.

 

National Treasury advances that one of the mediate measures to boost economic recovery is to reset the cities’ industrial parks. Taking into cognisance the value of City Industrial Parks to the overall regional and national economies. The Industrial Park Regeneration Programmewas established under the CSP aims to build the capabilities of cities to retain jobs and boost inward investment in well located industrial spaces. The objectives of the Industrial Park Regeneration Programmeis to:

• Retain and expand investment by firms through “getting the basics right”;
• Retain and expand employment opportunities in proximity to townships and informal settlements;
• Put in place institutional urban management mechanisms (including municipal and inter- governmental) to ensure the effective and ongoing management of these spaces;
• Build community awareness regarding the value of these spaces in terms of employment generation and economic inclusion and development; and
• Build local business networks to facilitate access to available incentives, markets and business support.

 

Further, the City Industrial Parks are one of vital enablers of economic growth through boosting cities revenue, employment creation. In addition, the City Industrial Parks contribute to the value addition in the hosting city via manufacturing production, attracts investment, promote innovation, enhance value chain linkages –city, regional, global, and boost industrial clustering to enhance industrial development. Further, the City Industrial Parks support and promote growth of start-ups and pump-up enterprise incubation.

 

It was reported that the Cities Industrial Parks Programme would provide over 3 years’ technical support programme to four metros, namely eThekwini, Tshwane, Ekurhuleni and City of Johannesburg. The following industrial parks within these metros were prioritised, namely Jacobs (eThekwini); Babalegi (Tshwane); Wadeville (Ekurhuleni) and Develand (City of Johannesburg).  The programme service product offering include providing insight information to improve planning and decision making, providing Business Retention and Expansion Surveys; Sectoral and spatial mapping of companies; Project packaging/ public investment catalogue; Resource mobilisation; Institution building and Industrial Park Regeneration Plans. The Programme will be co-implemented by National Treasury’s Neighbourhood Development Partnership Programme and will be rolled out in collaboration with the Department of Trade, Industry and Competition and Gauteng Provincial Government.

 

It was further reported that in order to have a successful City Industry Parks, the policy instrument should be aligned to the national industrialisation strategy; access to high quality industrial land including superior infrastructure; reliable service delivery; competitive service delivery charges; compliance with environmental regulations; promote and support cluster enhancing activities e.g. vocational training, logistics, business development services, techno-parks. Coupled with functional internal land market; good governance –representative structures of entrepreneurs and public sector, and in addition there must be supported with clear visionary leadership.

 

It was further reported that the outcomes of the Business Retention and Expansion surveys at the four industrial parks prioritised indicated that a number of firms reported issues with extremely or very high crime levels, red tape from metros and unreliable or somewhat reliable municipal services. Further, the survey shows the impact low investor confidence and declining balance sheets of companies.

 

Further it was reported that the in terms of the Industrial Park Cost of Crime Framework, number of firms had increased defensive expenditure for crime detection and prevention; increased insurance costs; increased repair costs; loss of output or productivity, increased human costs as a result of physical, emotional and mental harm as well as an increase in police and law enforcement costs. The industrial parks further reported reduced occupancy rates, reduced lease rates and a decline in property value as a consequence of elevated crime levels. Out of the survey, the top issues impacting business retention were as follows:

• Interrupted and unstable power supply;
• Crime;
• Market conditions/ foreign competition;
• Regulatory environment;
• Basic service delivery and infrastructure;

 

Industrial Parks are noted as valuable city and national assets, however they are underperforming. This is evident in declining employment and turnover and are mainly attributed to service delivery constraints, especially energy; safety and security; ineffective park management and inadequate reinvestment in the space for infrastructure investment and maintenance. It was advanced that there is a need to address service delivery infrastructure and park management issues relating governance and resource management. The interventions need to be part of an integrated Industrial Parks Turnaround Plans.

 

Failure to resolve land and governance issues will perpetuate under-performance. Cities are well placed to co-ordinate development and implementation of the Industrial Parks Revitalisation Plans together with other spheres of government, state owned enterprises and private sector. National Treasury advances that turning these parks around is a quick-win for government as industrial base and jobs already exist and it is not about pumping more funding. The Industrial Park Revitalisation approach is in line with the District Development Model (DDM).

 

The Trade and Industrial Policy Strategies (TIPS) emphasise that the success of SEZs, and extension the Industrial Parks should drive expand exports and replace imports; create backward and forward linkages (demand for intermediate inputs from domestic economy and supply of intermediate inputs for domestic enterprise). Further, industrial spill overs, via training, innovation and research development would lead to upgrading of practices and technology as well as creation of new production system in domestic activities. In addition, SEZs and the Industrial Parks should create employment both directly and indirectly and develop the hosting communities.

 

3. Special Economic Zones

 

This section should be read taking into account what the section outlining national development perspective has outlined elsewhere this report in terms of dominance relating to SEZs, which were initial administered as IDZs. These SEZs could be regarded as the forerunners of the current SEZs. Many, like Coega SEZs were located to coastal areas linked to sea ports an advantage in terms of exports driven investments. As reported in this report, Coega SEZs is one of the dominating SEZs in terms of investment attraction and employment creation.

 

3.1 Coega Special Economic Zone, Eastern Cape Province

 

The Coega SEZ is located in the Nelson Mandela Bay Metropolitan. It was developed and managed by the Coega Development Corporation (CDC). It aims to drive local and foreign direct investments in export-oriented industries - positioning South Africa as the hub for Southern African trade.

 

The Coega SEZ, while offering global competitiveness through infrastructure, tax incentives, rebates and a duty-free zone, is purpose-built for manufacturing including beneficiation of export goods, investment and local socio-economic growth - skills development and job creation. Adjoining this, the largest SEZ in the Southern Hemisphere, is the Port of Ngqura - a modern multi-user deep-water harbour developed by the National Ports Authority of SA as a gateway to global markets.

 

The Coega SEZ and the deepwater Port of Ngqura remain catalysts for investment and local economic development. It reported that Coega SEZ focuses on offering the best solutions to prospective investors by assisting them every step of the way to ensure projects move from concept to completion. It was reported that Coega has successfully attracted a healthy mix of both local and international investors. It has moved from the initial anchor tenant approach to focusing on strategically attracting a range of medium, large and mega projects to diversify and strengthen the industrial base.

 

It was reported that the achievements and successes of the Coega SEZ over the past couple of years have proven that a mixed approach to attracting investors is working. Further, over the medium term, a number of catalytic big projects valuedover R75-billion, are envisaged which will enhance the attractiveness of the Coega SEZ as an investment destination.

 

In order to attract investors to establish operations in South Africa, Coega SEZ is offering the following key features:

• Clustering for synergy and supply chain integration;
• Facilitation of access to government incentives (local, provincial and national).
• The suite of incentives includes and is not limited to one-time and/ or recurring grants for:Skills Development; Export Marketing (new market development); Job Creation (the national and provincial grants can be accessed concurrently); Foreign Investment (compensated for the qualifying costs of moving newmachinery and equipment [excluding vehicles] from abroad); Investing/re-investing in Productive Assets; Black Business Development, and Customised Solutions for Investors e.g. serviced sites, fit-for purpose buildings.

 

Coega SEZs’ priority industries include Chemicals; Automotive; Agro-processing including Aquaculture; Logistics; Energy; Metals, Maritime and Trade Solutions/Training and Development cluster including Services.

 

It was noted that implementation challenges include regulatory frameworks. Funding and financing remains a challenge. As noted elsewhere in this report alternative financing solutions would need to be found. Further, the cost of doing business and the lack of reliable water and electricity should be tackled.

 

The Coega SEZis in the process of launching the Digital Hub. It was reported that the operating model seeks to promote inclusiveness in the digital economy and further seeks to have a long term impact on youth, including emerging entrepreneurs operating from rural and township economies.

 

3.2. Nkomazi Special Economic Zone, Mpumalanga Province

 

The Mpumalanga Provincial Department of Economic Development and Tourism and the eHlanzeni District Municipality submitted a joint presentation on the Nkomazi SEZ, which has been formalized to provide a competitive and highly efficient industrial cluster. The SEZ is positioned to be a leading hub for agro-processing, nutraceuticals and logistics services activities within South Africa.

 

The process of establishing the Nkomazi SEZ was initiated in 2012 with three distinct phases namely Designation, Interim and Development. The Designation Phase was approved by Cabinet in December 2018 and formally gazetted on the 22nd of March 2019. The approval of the SEZ carried some conditions, which needed to be adhered to for the special economic zone to be operational. The conditions were approved by the Minister for Trade, Industry and Competition in January 2019. The Letter of Designation outlined the following conditions, namely:

• Upon designation the province must appoint an operator with the necessary capacity, knowledge and experience to manage the SEZ. There SEZ must appoint the operator in accordance with the SEZ Act;
• The SEZ must comply with B-BBEE and Employment Equity legislation, in particulareconomic inclusion of black emerging farmers, local sourcing, and black economic participation along the full agricultural value chain;
• The Nkomazi SEZ Board must have representation from the Department of Trade, Industry and Competition; and
• The applicant must demonstrate private sector participation, particularly in the funding of SEZ infrastructure.

 

It was reported that the total value of the investment pipeline- post Designation is R9.1 billion creating 18 950 direct jobs, with the largest proportion of investment allocated to logistics and the largest proportion of jobs created in agro-processing.

 

As of 2020/21 third quarter reporting, the SEZ is recognised as one of the special economic zones that are not yet operational. The report submitted by the Department of Trade, Industry and Competition indicated that it is estimated that when the economic zone start operating is expected to attract approximately R1 billion. It has signed 6 investors. It was reported in this report that the SEZ is one of the prioritised proposed economic zones that are also struggling to take off. It is anticipated that the SEZ would receive necessary support from the dedicated intervention teams that would be supported by the SEZ Project Management Unit established at IDC. The SEZ Project Management Unit is expected to work closer with DBSA.

 

In respect of progress towards establishment of the SEZ Entity, the Interim Board finalised the Memorandum of Incorporation (MOI). The Auditor General of South Africa (AGSA) has been appointed as auditors by the Interim Board and the SEZ Entity has been registered as the State Owned Company in terms of the Public Finance Management Act. Further, the process of listing within the PFMA has commenced. Currently, the SEZ is in the process to appoint a full board.

 

It was reported that issues which require urgent attention include land preparation; access to the SEZ site; institutional arrangements, finalisation of the ownership model and availability of funding from the provincial government through the Equitable Share Funding to fund the SEZ Programme.

 

3.3. Platinum Valley Special Economic Zone, North West Province

 

The North West Provincial Department of Economic Development and Tourism, the North West Development Corporation and the Platinum Valley District Municipality presented a joint presentation on the Bojanala Valley SEZ. It is envisaged that the SEZ would be located in a 100-hectare site of the Bodirelo Industrial Park. The site will be developed into three phases comprising of a logistics park, light manufacturing space and a heavy machineries manufacturing space.

 

It was reported that the Bojanala Valley SEZ has been established to increase foreign and domestic investment in the Bojanala District; increase exports of value-added manufacturing goods from the region; ensure employment creation, technology transfer and skills development. Further, to ensure the spread of industrial development regionally and the promotion of industrial agglomeration in the region. Critical for the project is also building the required industrial infrastructure in the Bojanala District and promoting the coordinated planning among key government agencies.

 

The key industries identified to drive industrialisation at the SEZ are the following:

• Agro-processing
• Mining equipment and machinery
• Mining and mineral beneficiation
• Renewable energy
• Mixed use for offices and logistics support

The North West Provincial Department of Economic Development and Tourism through its Member of Executive Council (MEC) hosted a dialogue with the private sector to solicit inputs and to forge strategic partnerships in implementing economic recovery plans. These include the upgrading of existing infrastructure such as existing industrial parks revitalisation, storage silos, rail, roads and airport upgrading to drive industrialisation. New catalytic infrastructure projects have been identified to support industrialisation. It is anticipated that the Infrastructure Fund would support some of the development initiative. Further plans include the review and development of the District Infrastructure Master Plans to unlock competitive and comparative advantages for the four districts in the province to support sector plans that are being developed.

 

Digital Innovation Hubs (DIH) are support organisations that aim to make businesses more competitive by speeding up the development and uptake of digital innovations. In partnership with the Small Enterprise Development Agency (SEDA), the province has established two digital hubs which are the Mahikeng Start-Up Grind focussing on building capacity on the Fourth Industrial Revolution and deployment of digital technologies mainly to youth. The second is Leema Township Incubation Hub, focussing on development and manufacturing of electronic products such as laptops, cellular telephones and other electronic gadgets such as alarm routers. They are licensed by the Independent Communications Authority of South Africa (ICASA) to produce electronic equipment.

 

The Mahikeng Digital Hub will assist the Province in the roll-out of Buy North West Online SMME Market Platform that will be transferred to the North West Development Corporation in the 2021/22 financial year. The programme has an allocated budget of R3 million. The second round requests for proposals have been issued for establishing a Township or Digital Hub in Dr Kenneth Kaunda District and is allocated a budget of R3.5 million.  Provincial incubation and digital hubs are mainly used for skilling youth in electronic and digital technologies. 

 

In terms of progress to date, Cabinet has requested that the province attend to the following:

• The Bojanala business case has been reviewed as per Cabinet Recommendations and is ready for re-submission to the Department of Trade, Industry and Competition’s SEZ Board for designation;
• Moses Kotane Local Municipality and DBSA are finalising a 30 year Bojanala SEZ Master Plan that will be reviewed every 5 years to align it to investment commitments received;
• The mining industry intend to set-up a R6 billion Mining Supplier Investment at the SEZ Zone targeted at supplying Platinum (PGM”s)  and Chrome Mines in and around;
• The SEZ Technical Team has been strengthened to fast-track decision making and support.

 

The Bojanala SEZ is intended to provide space (host) for all suppliers to the mines. Memorandums of Understanding (MOU’s) are currently under discussion to bring additional R6 billion as an investment to jump-start the initiative. Jobs creation is anticipated from new investments and during construction phase. It is envisaged for the Bojanala SEZ to take equity stake in new investment to improve revenue and sustainability. The plan is to further integrate local SMME’s into new investment value chains brought about by the SEZ which has further been identified as a strategic anchor for the District Development Model.

 

The Department of Trade, Industry and Competition has submitted to the Committee that the Bojanala SEZ application is still pending. The following areas need to be addressed:

• Acceleration of the revitalisation of the BodireloIndustrial Park;
• The Business Plan for the proposed Bojanala SEZ tobe revised by the end of December end of December 2020;
• Consolidation of the Investment Pipeline;
• The establishment of the SEZ company by end ofMarch 2021;
• Strengthening of the governance capacity of thePMU for the effective planning and development ofthe proposed SEZ, and strengthening project pipe line by endof March 2021.

 

3.4. Halal Industrial Park, Western Cape Province

 

A Halal Industrial Park is a community of manufacturing and services businesses all located in an industrial park. Tenants in such an industrial park seek enhanced environmental, economic and social performance through collaboration in managing Halal products and resources required. The Halal Hub concept follows the feasibility study which was completed to establish a Halal Industrial Park in the province. The project intended to attract investment for the province into Halal projects, businesses, infrastructure and related assets, with the view to promote the province as a Halal trade and investment destination.

 

Agro-processing is one of the key strategic goals of the Western Cape Provincial Department of Economic Development and Tourism and through the Project Khulisa agri-processing Action Plan. Through capturing a larger share of the global halal market to 2 per cent by 2025, the Halal Industrial Park is one of the three agro-processing intents of the Department.

 

The Halal Market opportunities for the Western Cape include the following:

• The potential to extend into mainstream markets such as the United Arab Emirates (UAE)
• Increase supply to food dependant markets, for both primary and premium commodities
• Actively involving new consumer segments in market
• An opportunity for emerging entrants

 

Through building on the Western Cape asset base, further Halal opportunities are as follows:

Production Capacity Strong primary production base; Globally dominant position in ostrich; Base of well-established halal certification bodies; Large number of Halal certified suppliers; Some well organised sectors; Higher education facilities;	Market Access Trade and investment with key Muslim markets; Natural and clean environment, high biodiversity; Research and Development, genetics and varietal development, innovation; Lifestyle: trendy and healthy
Tourism and Investment Recognised international tourist destination; Relatively Muslim friendly;

 

The integrated Halal Strategy of the Western Cape Province and progress is as follows:

Strategy	Progress
Ensure effective governance in the Halal industry	Structures have been set-up
Establish a Halal certification standard	Final stage in the programme
Establish a Halal processing hub	Feasibility study completed, virtual hub being developed
Promote SA Halal products in key markets	Ongoing
Ensure SMME and previously disadvantaged individuals access to the value chain	Halal value chain programme implemented
Ensure skills supply meets demand
Address paucity in Halal data	Data procured

 

The Feasibility Study on Halal Industrial Park was divided into the following two phases.

 

The Phase One Studywas implemented as a Pre-feasibility level study during the period from August 2016 to November 2016 with the following deliverables:

• Selection of suitable site;
• Feasibility Study on suitable site;

 

Phase Two Studywas implemented as a full-scale feasibility study from February 2017 to May 2017 with the following deliverables:

• 3x Investor Prospectuses;
• 3x Feasibility Studies;
• General Investment Case;
• Marketing and Promotion Plan;

 

Wesgro was tasked to promote the Western Cape Province as the Halal hub by implementing the marketing and promotional plan produced during phase 2 of this project. The investor prospectuses promoting Halal investment to the Western Cape were prepared and taken to carefully selected Foreign Direct Investment markets to attract potential developers and/or investors to the Western Cape Province. The Halal Investment Promotion functions identified for implementation by Wesgro of this plan included the following:

• Conducting global Halal FDI flow analysis;
• Undertaking Outward FDI recruitment missions;
• Marketing the Investor Prospectuses in countries with potential investors and developers;
• Hosting inward investor delegation missions;
• Organising and/or participate in Halal events with the hope of recruiting investment or implementing the marketing and promotional plan and
• Implementing the General Investment Case recommendations of recruiting investors for the Western Cape Provincial Halal sector

 

Western Cape Government has recognised Halal as an industry and positive driver for value creation and economic growth. The objective to establish Western Cape as Africa Halal Park, was considered non-feasible due to the outcomes of the feasibility study as part of Project Khulisa. The Department is therefore proceeding to support the Halal industry through a range of sector support initiatives linked to the vision of creating a halal hub within the Western Cape.

 

Although Halal industrial development initiative in the Western Province has shown difficult sign to take off. The initiative has demonstrated a great potential of Public-Private development initiative to drive industrial development by leveraging public funding to crowd in private capital to boost economic growth, attracting investments and employment creation.

 

4. Key Issues Arising from Engagement

1. Noted the importance of the SEZs and Industrial Parks in the overall economy, particular for the hosting regions, and municipalities.
2. It was acknowledged the need to deep integration of the rural development strategy in the formulation and implementation of the SEZs and State Owned Industrial Parks including the City Industry Parks (initiative administered by National Treasury).
3. Poor governance in managing SEZs and Industrial Parks needed to be tackled including scaling up efforts to eliminate high levels of crime and vandalism industrial assets such as State Owned Industrial Parks including industrial parks located in the cities.
4. It was emphasised that high crime levels and poor governance hinder industrial development as they discourage investments needed to boost economic growth and employment. To this end, it was agreed that a multi-level approach led by law enforcement agencies (South African Police Services) should be developed to collaboratively address the criminal acts related to the industrial assets. Further, communities should be incorporated in the broader strategy to address vandalism and crime. Failure to do so will negate all the economic gains made, and envisaged socio-economic benefits anticipated in the implementation of the development initiatives.
5. Members raised concerns regarding the massive under-investment in infrastructure as well as poor maintenance which inhibits industrial development, and compromise growth and jobs creation efforts. Partnerships needs to be developed in order to ensure that the responsibility of investment and maintenance of infrastructure is equitable shared amongst all three spheres of government.
6. It was noted that the Nkomazi SEZ is strategically placed to facilitate cross industrialisation and cross border trade, it is further placed to strengthen regional integration. Due to serious delays over the past three years with the province and local development agency lack of urgency, Members raised concerns regarding the extent to which new approaches have been explored to strengthening the following:Establishment of operator of the SEZ; Planning and implementation of the development project; resource mobilisation including ensuring sufficiency of budget is allocated; to ensure that investors who initially made commitments are not lost due to delays, and attraction of new investors. Importantly, institutional and governance issues need to be urgently addressed.
7. It was noted that due to the African Continental Free Trade Agreement (AfTCA) work needed to be done with the Department of Agriculture and Rural Development including other relevant state departments and entities across spheres of government in order to ensure that there is sufficient agricultural land available to ensure there is sufficient supply of goods needed for both domestic and global market and to take advantage of agricultural trade exports to the African continent.
8. Members urged that plans need to be fast-tracked to halt urban migration and create more opportunities in peri-urban and rural areas. Both the SEZs and Industrial Parks Revitalisation programmes should be used as strategic instruments to break the urban and rural economy divide. Rural development should be strategic incorporated to the trade and industrial development plans. Investment opportunities must be identified even in peri-urban and rural areas. This does not under-estimate the potential of cities as significant growth contributors to the overall economy.
9. It was reported that the Industrial Park Regeneration Programme was part of broader economic reconstruction and recovery initiative. Further, noted that urban areas are where the majority of the country’s population resides, however there is work being done to establish development corridors cutting across rural areas. The role of provinces, and local government need no further emphasis.
10. The Committee noted the need for a balanced approach to economic development in order to address the challenge of migration.
11. It was noted that many companies have demonstrated willingness to operate in industrial parks than to SEZs. Low rental that industrial parks offer to companies particular to SMMEs play as an incentive for many companies to prefer industrial parks than SEZs. Industrial Parks still over immediate benefit to the investors, particular those focusing to the domestic market.
12. It was noted that unreliable basic services such was the provision of reliable water and electricity supply hinders industrial development. It is one of the key challenges affecting the establishment of SEZs particularly in rural areas. Coordination across government needed to be accelerated to tackle energy, transport, water infrastructure in peri-urban-rural towns and cities. It was submitted that feasibility studies are being conducted to explore opportunities for the construction of a dam in those areas that have little access to water.
13. All spheres of government have a responsibility to drive investment initiatives. Coordination in this regard was emphasised. National, provincial and local trade and investment promotion agencies need to work in a collaborative manner to attract investments. It was also reported that various SEZs have the capacity and capability to attract investments as they offer unique value propositions regarding the diverse industries they service.

5. Observations

1. Alignment of the SEZs including Industrial Parks with national, provincial and local government economic development strategies is essential.
2. Location of SEZs including industrial parks should be based on economic advantages to ensure sustainability and attractiveness to investors. The locations should be strategic to facilitate backward and forward linkages with downstream and upstream industries while also having a pull effect for other locations in the rest of the economy.
3. Coordination of resources, and inclusion of private sector including development finance institution to ensure that SEZs remain financial and economic sustainable.
4. Noted that the outcomes of the SEZs seem more promising in account of the level of investment and the number of jobs created (see Table 1, section on national development perspective). South Africa has high number of unemployment, and with surplus of unskilled labour. There is a growing concern that the Special Economic Zones should also priorities labour intensive sector, advocates the Centre for Enterprise Development.  Costs in Asia, especially China, are rising and there is much talk of millions of labour intensive firms looking for new regional locations.
5. SEZs suffer from the lack of adequate financing. Further, there is a need to maximise the multiplier effects of SEZs through the effective integration of local suppliers in SEZ value chains.
6. Manage conflicts or overlaps that could occur with other government programmes on investments and incentives. To ensure effective and efficient allocation of resources.
7. Support in preparing justification for SEZs is critical. It is noted that SEZ application should demonstrate how the SEZs will facilitate the creation of an industrial complex with strategic national economic advantages for targeted investments. Further, SEZs application has to demonstrate how the SEZ will take advantage of existing industrial and technological capacity by promoting integration with local industry and increasing value-added production, should be promoted. Building capacity at local government should be prioritised.
8. The City Industrial Parks Programme has a great potential to boost economic growth, investment and job creation in cities across the country. It has the potential to deepen private market participation in under developed provinces and cities.
9. Although political authority is essential to drive policy agenda. Commercial and economic considerations should determine the establishment of SEZs, and by extension Industrial Parks. The creation of development partnership that includes labour and private sector is crucial to the success of SEZs including the Industrial Parks.
10. Infrastructure, including electricity, water, and access to roads/rail facilities are essential. Slow spending on capital budgets, poor infrastructure management and investment and governance in provincial and local government including SOEs has the potential to hamper the sustainability of SEZs and Industrial Parks initiative. Inadequate or lack of infrastructure discourage investors.
11. Promotion of public-private development and management of SEZs (including Industrial Park Revitalisation platform) is essential. Taking into account that the fiscal purse is constrained. Alternative financing solutions should be found. As already stated the role of development finance institutions and private sector is critical.

 

 

 

 

6. Recommendations

 

1. Over the 2021 medium term, the Committee directs the Minister, through theDepartment of Trade, Industry and Competition in partnership with provincial government and local government toaccelerate the implementation of the Industrial Park Revitalisation programme. Further, the Department should formulate and submit a strategy plan to increase participation of private sector to reset operations of the State Owned Industrial Parks.
2. The Committee noted delays in approval and implementation SEZs in some of the provinces. Further, the Committee appreciated the establishment of the SEZ Project Management Unit. In addition to the establishment of the Project Management Unit, the Committee supported the partnership created by the Department with IDC and DBSA in an effort to support and accelerate implementation of the prioritised proposed and struggling SEZs. By the end of the of the 2021/20 financial year, the Department of Trade, Industry and Competition should submit to the Committee the progress report relating to the implementation plan in relation to the prioritised proposed and struggling SEZs.
3. Further, the Committee noted funding and financing challenges in implementing SEZs and Industrial Parks industrial development programme. Over the 2021 medium term, the Minister, through theDepartment of Trade, Industry and Competition,should collaborate with provincial and local governmentto submit alternative funding and financing strategy to support growth and sustainability of the SEZs and Industrial Parks industrial programme.

 

Report to be considered.